Is health reform to blame for expected health care cost increases in 2011?

Maryalene LaPonsie |
September 15, 2010

15Health reform has been the hot topic in the news lately. Both here and elsewhere in the blogosphere, the pros and cons of the most radical overhaul of the health care system since Medicare was introduced has been hotly debated. Twenty state Attorney Generals have brought their case against the health insurance mandate to federal court. Meanwhile, in Main Street America, citizens have lined up on both sides of the reform.

One of the big question marks in health reform is the cost. The Obama Administration argues that health reform may actually decrease the health insurance cost for many Americans as coverage for preventive care can reduce the need for costly emergency care or treatment of easily prevented chronic conditions. On the other side are opponents, led by the Tea Party movement, who state increased coverage mandates can only lead to increased health insurance premiums.

What do the numbers say?

What has been largely absent from the debate are actual numbers in terms of health care coverage and costs. Sure, the Congressional Budget Office has issued its estimates and other analysts have made their predictions, but the truth behind the cost (or savings) of health reform can only be known once the law's provisions are implemented.

Now, the first numbers in the post-health reform era are rolling out. According to Aon Consulting, a survey of 60 health organizations finds that health care claims are likely to increase 10.6 percent during the upcoming year.

The consulting firm notes that there are several reasons for the increases including:

Use of costly medical treatments

Chronic health conditions related to age and obesity

Use of short term insurance benefits by the unemployed

Health care reform

If 10.6 percent sounds like a lot, you can take comfort in knowing that the increase in health care costs for the current year was pegged at 10.7 percent. In addition, of the 10.6 percent increase expected in 2011, approximately 3-5 percent is attributable to health reform.

How health care costs affect health insurance premiums

Of course, these numbers only refer to the costs incurred by health organizations. To understand how health care costs affect health insurance premiums--that is, the amount of money coming out of your pocket for medical insurance coverage on a monthly basis--let's take another look at that 10.7 percent figure from last year.

Despite a double digit increase in health care costs, the Kaiser Family Foundation reports that most families saw a much smaller increase in their health insurance rate. According to a study by the non-profit foundation, premiums on employer-sponsored plans increased by 3 percent for family policies and 5 percent for single employee medical coverage.

The reason for the gap between health care costs and health insurance premiums is that many insurers do not pay the full cost of services to doctors and hospitals. Medical institutions agree to deep discounts in order to access the customer network of major insurers.

In addition, as Aon Consulting has noted, the cost of premiums can vary based upon factors such as:

Geography

Insurer profitability

Overall health of those covered

Design of the health insurance plan (PPO, HMO, etc.)

The bottom line? Health care costs may go up 10.6 percent next year but that doesn't mean your health insurance rate will too. Watch your bill closely, and if you are hit with a large increase, it might be time to shop around for a more affordable plan.